Earning Extra Income: Tips for Positive Cash Flow

A few weeks ago, I shared a monster list of ways to make more money. These weren’t cheesy chores or slimy scams, but legitimate ways a person could earn extra income if they needed. Most of the suggestions were drawn from GRS reader stories, from my friends’ lives, or from my own experience. They’re ways real people make real money when times are tough.

After I posted the list, though, I had a few people send e-mail or leave comments asking, “Why bother?” They wanted to know why I constantly harp on boosting your income.

It’s been nearly three years since I preached my complete “cash-flow” sermon. Today I’m going to preach it again. This will be review for long-time readers (or for folks who’ve read Your Money: The Missing Manual). For everyone else, one of the core tenets of the Get Rich Slowly philosophy is this simple truth: To build wealth, you’ve got to spend less than you earn. It all boils down to cash flow.

Cash flow basics on the road to earning extra income

If cash flow sounds like an accounting term, that’s because it is. But don’t let that scare you — it’s easy to understand. For any given time period, cash flow is what you earn minus what you spend. I call this the fundamental equation of personal finance. When written as a math formula, it looks like this:

[CASH FLOW] = [WHAT YOU EARN] – [WHAT YOU SPEND]

Simple, right? That’s second-grade math. But don’t let the simplicity fool you — this is a powerful concept. This formula tells us two things:

If you spend more than you earn, you have a negative cash flow. You’re losing wealth and in danger of going into debt. Or, if you’re already in debt, you’re digging the hole deeper.

If you spend less than you earn, you have a positive cash flow, which will let you climb out of debt and build wealth.

For example, if your income is $4000 per month and your expenses are $3500 per month, you have a positive cash flow of $500 per month. But if your income is $4000 and your expenses are $4500, you have a negative cash flow of $500.

The greater the gap between earning and spending, the faster you build (or lose) wealth. This may seem obvious, but smart personal finance really is this simple. Everything else — clipping coupons, saving for retirement, asking for a raise — is done in support of this basic idea.

The power of positive cash flow

Now, if you’re like most people, when you begin to realize the importance of smart personal finance, the first thing you do is focus on finding ways to cut your spending. This is great. Frugality is an important part of personal finance, even for those with high incomes.

Let’s say your monthly income is $4000 a month, as in the example above, and that your monthly expenses are $4500. You have a negative cash flow of $500, and it’s been that way for years. As a result, you have maybe $20,000 in debt, but that debt is growing by $500 every month.

By making some changes, you find that you’re able to drop your expenses to $4000 per month, which is exactly equal to your income. Your cash flow is zero now, which means you’re not taking on any more debt, but you’re not gaining any ground, either.

You go back to your budget and decide you can make some serious sacrifices. You give up cable television, plant a vegetable garden, and start taking the bus instead of driving to work. These sacrifices (and others like them) allow you to trim another $500 per month from your spending. You still have a monthly income of $4000, but your expenses have dropped to $3500, giving you a positive cash flow of $500. That’s $500 a month you can use to pay off your debt. At that rate, you’ll be debt-free in 40 months.

Note: Of course, if you had no debt, you could use this positive cash flow to save for retirement and other goals. Positive cash flow is a requirement to get out of debt and to build subsequent wealth.

Why your income is so important

The above numbers are just a convenient example. In real life, things aren’t always so simple.

In fact, I’ve heard from many readers who say they’ve cut all of the fat from their budget, that there’s nothing more they can give up, and they still can’t make ends meet. I also hear from readers who have a positive cash flow, but it seems like a pittance compared to their debt or their savings goals. Sure, they generate an extra $100 over expenses each month, but they have $50,000 in debt. At that rate, it’ll take more than 40 years to become debt-free!

It’s in situations like this that boosting your income becomes vital. Remember, there are only two ways to boost your cash flow: increase income or slash spending. If you’ve already slashed spending, your only option is to increase your income.

Let’s illustrate with an extreme example. Pretend you’re magically able to survive without spending any money. Your bare essentials — food, clothing, shelter — are provided, so your base costs are nothing. If you want to save for the future or enjoy conveniences (hot water!) or luxuries (a pillow!), you’re not going to be able to afford them by cutting costs. (Your costs are already nothing!) The only thing you can do is earn more money.

Another advantage to boosting income is that — in theory — your earning potential is unlimited. You’ll never cut your costs to below zero, but you can continue to increase your income in lots of little ways. And even after you’ve paid off your debt, extra income can help you build the life of your dreams.

Income is the gateway to wealth

So why do I harp on boosting your income? It’s simple, really.

I know several people I’d classify as wealthy — including the real millionaire next door. Not one of these folks became rich by pinching pennies. Each readily admits that frugality helps them keep the money they earn, but to actually get the money? They had to boost their income somehow: starting a business, working long hours, or taking risks in the stock market.

A reader story illustrates this point perfectly. In the comments, Jacq explained how she managed to save enough to become financially independent at age 45:

I got pretty aggressive on the income side of things. It wasn’t so bad because I saw it as a finite period of time, not something I’d have to do for the rest of my life. This past post on GRS could have been written by me.

My story is similar. Just a few years ago, I was deep in debt and falling further behind. Today, I have a very comfortable life. Honestly, I feel wealthy. Yes, I had to develop thrifty habits in order to take control of my finances. But what really really helped me become debt-free was boosting my income. And since becoming debt-free, I’ve managed to meet many of my goals (traveling to Europe and Africa, for instance) by finding ways to make more money.

So, this is why I’m so adamant that your earning power is important. Your income and your expenses both play key roles in determining your financial fortunes. Increasing your income makes you rich; slashing your spending keeps you that way.

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Great post! I think too often we forget that there is more than just frugality when it comes to boosting monthly cash flow. The biggest thing for me was finding those opportunities to grow income, because I can say that I really only saw the traditional methods (work in a dead end job during college) as the way to make money.

In almost every case, our time can be better spent working on new projects to develop income rather than spending hours coming up with a budget and finding coupons that will save us $0.32 every time we buy peanut butter at the grocery store.

I’m a long time reader so this was review for me but I still think it is really useful to come back to the basics every once in a while for a refresher. I have been working more on the income side of the equation this year and it has definitely boosted my savings. I picked up a second (week long) lecturing job that netted me an extra $10k. A few years ago I would have been excited to see this windfall in the bank and I’d “treat” myself to something (like expensive shoes, dinners, clothes, etc) because I “deserved” it after my extra hard work. However, thanks in part to reading sites like GRS I’ve realized that saving/investing this money is what will really pay off. So, instead of buying “stuff” I put half into a high interest online savings account (I can get 6.5% here in Australia) and put the other half into a managed fund. I was already saving a sensible amount but this extra boost to my income has really helped me to exceed my savings/investing goals this year and it is so much more satisfying to see that extra income continue to grow that see “stuff” gathering dust around my house (and making me feel guilty).

This is a very powerful message JD. I know some folks who say it isn’t worth it because the gov’t takes tooo much! But even if you are in a 25% tax bracket, you still get to keep 75% of what you earn less any commuting expense on a part time job. A 10 hour a week part time job could put an extra $75 a week into your pocket and help you get ahead.

Almost every time I have started a business, I have taken a part time job to keep some money flowing in. Our human capital is the most powerful earning tool we have.

The only time income doesn’t matter is if you are one of those people that will spend every dime that comes into their bank account.

However, that is hopefully the rare person.

Cutting costs will only take you so far. But increasing your income is definitely the way to go. Take the typical ‘blogger’ for instance. They probably started writing as a side job. Some income rolling in, but before you know, this person now has a whole new set of skills to rely on. They grow and learn and have now added a whole new dimension to their lives. My point is, quite often increasing your income comes with increased learning, which makes you more marketable period.

Combine increasing your income with cutting down spending, and you (anyone) should be all set!

I probably need to do this, but I just hate the thought of selling any more of my time. I’m already wasting forty precious daylight hours a week on my regular job, and there’s a lot around the house and yard that isn’t getting done.

I recently started consulting for the sake of earning a little extra and setting myself up for other opportunities in case my employment situation changes. I used to think I’d be able to weather a jobless time for six months or more–and I likely would–but the time importance of cash flow can’t be underestimated.

I know JD had a lot of responses about how difficult it is to find extra income and I felt that way too. Promoting myself online and a whole lot of luck got me my first customer. After that, I made sure to maintain a good relationship and I’m sure this job can lead to others. If there are others in the tech field interested in consulting, I can HIGHLY recommend this article (even though this article is about IT, I’m engineering): http://unixwiz.net/techtips/be-consultant.html

GRS has been part of my RSS daily reading habits for most of 2010. My wife and I began evaluating our financial situation this year to pay off some high interest rate debt and position ourselves better for the future of our family.

Thank you for the thought provoking and often informative articles! They not only provide new and interesting ideas, but also confirm some of my own experiences and thinking.

Certainly there is a point of diminishing returns- because of taxes, time constraints, whatever. However, I find that many many people who read personal finance blogs are far from maximizing their incomes ( in ways that make sense). Yet so many are looking for ways to cut expenses that ALSO take a lot of time and effort. There is only so much you can cut and still live what most would consider a happy enjoyable lifestyle ( not spending on extravagent stuff, just living a healthy life). It is much easier to increase income than cut expenses beyond a certain point.

I have a blog on frugality that is rarely ( never) updated. I get search traffic mostly for things like “reusing toilet paper.” I think GRS readers might be better off than typical frugal blog readers, but it seems like many are obsessed with ways to save pennies and dismiss the more attainable returns of increasing earnings.

one also needs to enter other things into the equation-things like how important your time is to you, how much tax bite is taken out of earnings versus non taxed savings, and frankly, now much you “need”.For some (many folks), once they have done that math, tehy ay decide that the additional sacrifice of time is not worth it. I live on a pension, but I work as little as possible. My time is much more important. someone with childrne may decide that time with family is more important than earning money.

Great reminder J.D. I especially liked the example where you assumed basic needs were covered. But of course even if those are met, if you have no income, you can’t have anything extra. It doesn’t matter how frugal you are if there is nothing there to begin with.

A great post, and very apropos given current events in my life. I really like the part about having 0 expenses to highlight the importance of increasing your income.

At some point, you’ve pinched all the pennies you can – by eliminating all the luxuries, limiting variable expenses every month, etc…you can only save so much.

I’m grateful that I found a way to bring in an income separate from my salary. I used to be a teaching assistant at a local university, specifically I held review sessions and office hours for the Executive MBA program’s economics class. Well, I guess I did a decent job as one of the students referred me to students in the incoming class. They contacted me, and we’ve been working together ever since.

One thing I’ve noticed about having a side gig is it makes you think of yourself as a business. You start thinking of ways to promote yourself and increase the cash inflows (while keeping cash outflows level, as you described). It’s pretty cool.

I owe approximately $18,000 but am not feeling the pain of expensive auto repairs because of this side gig, and plan to continue finding ways to improve my cash flow situation. Thank you for reminding me there are two sides to manage in the cash flow equation.

It’s so easy to forget one side of the equation or the other: focusing entirely on cutting expenses, or (possibly worse) focusing entirely on increasing income but forgetting to maintain or reduce expenses.

Doing both is really powerful: suddenly you have more money AND fewer expenses. That just makes life so much easier.

You don’t always have to start a side business or work longer hours to increase your income either. Sometimes just asking for a raise or getting a higher-paying job will do it.

@ #9 Barb, I agree with you. I think it is worth while to consider working too hard for very little return. My first child is due in a few weeks and my wife was laid off in 2009. We looked into her returning the work force and between tax advantages, future childcare, additional car insurance, and commuter expenses(fuel etc); we realized that she would have to earn approximately $45,000 a year to make it worth while for us. Especially considering the time we want to spend with the baby. My current employment requires me to be away from home for weeks on end and losing even more time with my family really plays into that decision. Also, our frugal living allows us to pay down debt, emergency funds, retirement, and now funds for that crucial time when young adults start establishing themselves(late teens/early twenties).

Awesome post. It is becoming more and more apparent to me that there are things in life I want to do, but are completely out of reach for me right now. My wife and I just started a photography business and it is extremely freeing to start a business and realize that your earning potential truly is limitless.

I agree with this post. I am currently one of those people that is spending time trying to help increase household income. I went back to school for an MBA to improve my credentials, a friend and myself have started a budgeting website, and I am hoping to find a full-time job upon my completion of my MBA this month. Added income will allow my wife and I to save more and take more vacations at the same time. Like DJ, there are things we want to do and that income will help.

Cashflow is extremely important for any area of life, whether it’s a corporation or a personal account. If there is more going out than there is coming in, there’s going to be problems.

I admire you for starting your own website. I’m sure it has provided you with an adequate income over the years and has boosted your overall cashflow. I am trying to do the same with my website. It’s still a baby, but we’re getting there!

Just a note that cash flow is more about cash in vs. cash out than it is about revenue minus expenses. What you earn minus what you spend can be positive while you can still have a negative cash flow. Otherwise though, 100% agreed with the article.

By the way, I find this to be equally applicable in the other “numbers game” we all struggle with, namely, weight. Too many people focus on one side of it (cutting calories through diets) without also seeing the other side of the equation (burning more calories through exercise). You can only cut so much…

I completely agree. The first thing to do is to cut expense and make sure you spend less than you make. Once that is achieved, then concentrate on making more money. If you don’t cut expense first, the more money you make, the more money you spend.

The federal government would be wise to subscribe to GRS. They like to do the opposite–cut income (taxes) and increase spending (social programs, military).

On a separate but related note, the psychological side should be addressed: To paraphrase Barry Schwartz, author of The Paradox of Choice, it is wise to “anticipate adaptation.” In other words, be aware that your own human tendency to adapt to the higher income, in the form of more spending and a desire for more income, is crucial to your own personal economy.

I spent too much time on the expenses side of my balance sheet until about 15 years ago. After I finally realized that I needed to increase my income, it happened quickly. And, I don’t spend more time working, I just get paid more. I wish I had of thought of it sooner.

This comes at a perfect time for me. Just a couple days ago, while having a panic attack about another medical bill coming in that I couldn’t pay, and worrying about the fact that I can’t even eat properly on my budget and how will I ever make it work because my job won’t be giving me a raise any time soon and I’m pretty well paid for my experience and position so the only way to boost my income in my field is to change jobs and go corporate… (yes, that’s what it sounded like in my head, no punctuation there either ;)… a light bulb went off!

I could be a candle lady again! I need a job that is flexible around my schedule, has a high rate of return on time, and where my boss understands that sometimes I get called in to work (or just called to deal with a crisis or a question). What better job than one you run yourself, set your own schedule, and in my case, already have experience?

Seems like I rack my brain over what I could do to bring in a little more money, but I haven’t come upon a viable solution as yet. It seems ungrateful to ask for a raise during economic hard times, and I can’t stand on my feet for any length of time and most second jobs in my rural area would require that. But I have hope that perseverance and opportunity will cross paths soon! In the meantime I’ll review the post on the many ways to earn extra money to see if anything would be a fit for me. Thanks! Bess

Another great article as usual. i enjoy reading each and everyone.
Thanks JD for all your help during the year. Your website has helped to improve my finances. I just wish it was around 20 years earlier.
Have a great Christmas and a wonderful New Year.

What you are referring to is not cash flow, but net income. This is a very important distinction, because you can have a good net income but poor cash flow, or a good cash flow with poor net income. To be successful you need both. If you take out a $1,000,000 loan this year, that is a +$1,000,000 in cash flow, but does not affect your income (our would harm income because of interest).

As a 28 year old, I can happily say that I “get” this and I do try and encourage others to realize this also. I have coworkers/friends who make less than I do, but that’s only because I’ve been willing to fight for my raises, even to the point of quitting jobs. Perfect example: I was promised a certain raise in a certain time period, and my employer was really dragging feet/giving excuses/not following through. While I waited (and while making sure they realized I was serious), I started to look at the new job postings in my company. I applied to a long shot, just because it looked interesting, and now a short month later and I have a new job that’s still in my company (i.e. get to keep all my benefits, roll over vacation time, etc) but pays me 25% more than my last job (the maximum raise I could get within my company). Now, I would have stayed in that last job if they had given me a 10% raise, but because I was willing to basically call their bluff, I ended up in a better situation with way more money. Also, my employer doesn’t allow people to move down in salary, so I’ve also secured my salary at this level or above for the rest of my career here! Studies have shown that the less you make early in your career, the less you’ll make over the years, and so I’m not taking my age as a reason to accept a low salary. People are often foolishly thinking their employer will give them what they deserve, instead of going out to fight for it, and to make the leaps when necessary!

Who could possibly NOT understand the importance of their income? People who are filthy rich or live with their parents I guess. When I read the title to this entry I was like, what’s next? Why oxygen is important?

I have been reading GRS for about 2 months and I have read several comments/posts about “freelancing” and “consulting”.
What types of jobs are these freelancing and consulting jobs? I am not sure I have any skills that would bring me any freelance or consulting money. Could you maybe do a post on some specifics regarding freelancing and consulting. It seems that one has to have a particular skill set to get that type of extra income.

I don’t understand…are the people e-mailing you with “What’s the point?” referring to small increases in income? If so, then I might be able to understand why they think “Why bother?”

Many people, through small side-gigs and such, might earn an additional 30 bucks there, 50 bucks here, and compared to their overall regular income and expenses, think $30 or $50 is “nothing” and “won’t make a difference.”
The thing is, it all adds up!!

@Sara – So inspiring to hear your story. Not many women fight so hard for raises, or to get what they know they’re worth. You go girl!!

Not everyone can have a high income, but everyone can practice frugality. There are a number of people in The Millionaire Next Door who became so with modest incomes (though most have fairly high incomes.)

I am a teacher, as is my husband. We could increase our income by tutoring or by teaching in the summer. We choose not to do so.

Sure frugality is good but without a good income it doesn’t matter. Frugality will help you do right with your money. It’s in your power to handle the income you make.
The hard part is the income side. Getting that up will make everything better. It cures all problems.

I agree with this post. I’d like to add that in my opinion, frugality needs to come first. If you start by raising your income and you don’t cure your bad spending habits, you might end up with even more debt as you constantly go “well, I’m earning more, so now I can afford this”.

Focusing on frugality first of all is, in my opinion, the way to go. It makes it easier to raise your cashflow when you raise your income, as you’re used to spending little. However, of course frugality is about saving the money you’re earning, so you do need to earn it.

The problem is that someone who earns a lot might not see any problems in their spending because they earn so much. Someone who works so hard to earn more and more will thing they deserve the luxuries to keep themselves sane, without realising they’re only putting more stress on their own shoulders.

In my opinion, only when you have really mastered the frugality part of it (in a way you’re comfortable with, at least) should you try raising your income. The exception would be if it’s absolutely impossible to get by as it is because there is nothing at all to cut. However if that’s the case, you’re already frugal (if there is more you can cut and you don’t see it… that’s exactly when you shouldn’t raise your income, since that’s only going to prevent you from seeing where you’re wasting your money!)

I really think its important to boost ones income, thank you for having a well balanced blog. Some PF writers focus too much on frugality, its almost as if they think its “bad” to focus on making money. There are people out there who hate wealthy people for some reason or another.

IMO frugality and increasing income go together. I think if a person can handle themselves on a small income, they will be able to handle themselves on a larger income.

I think that’s why some people go from making 20k to 60k and are still in debt, have spending problems, etc. or why you see poor people win the lottery and end up broke 5 years later.

Currently I only make $8.50/hour but I went back to college in 2010 to get an accounting degree, I don’t get people who asked you why you bother on writing articles on increasing income. I’m glad that you do Mr. Roth. I hope you continue to do so because its sage advice.

Even at my level of income I realize the importance of making more money, of being frugal, investing, etc. I think anyone that has average intelligence and is bodily able can increase their income in some way.

IMO I think there’s a limit to being frugal. IMO being frugal is about cutting back to my comfort level but no more otherwise it would drive me crazy. I don’t spend excessively and I have zero debt, no car loans, no credit card debt, no mortgage debt (I currently rent with my bf an apartment).

But there are things that I want to do that are harder on a smaller income. I want to save for retirement, take a vacation since I haven’t taken one in 5 years.

I’d like to take graphic design courses in addition to my accounting classes. With a smaller income it takes longer to reach those goals even when you live very frugally like I do. I’d like to add that I live in the midwest where the cost of living is affordable but it still costs money.

The thing is, cutting expenses is just so much EASIER than making more money. It takes hours and hours of work, or a surge of bravery to ask for a raise. Saying “no” to a purchase or finding a cheaper deal is easier and faster.

Making more money is all well and good if you can do it in a way that minimizes inconvenience. Maybe you can fit a way to make money in with a hobby you love, or just sell your extra stuff. Otherwise, you are not comparing like for like.

“What’s the point?” is a question that makes a lot of sense to my. Why on earth would I put all that effort into making more money when I can put out just a little bit of effort and save the same amount?

Jaime: I did the same thing. Went back to college for my Accounting degree, after not being able to find enough work as a Graphic Designer. The graphic design field has TOO MANY PEOPLE in it, and wages have plummeted and jobs are hard to find.

However, I see dozens of comments on financial blogs and news articles about people “going back to college to get their Accounting Degree” and I have a sinking feeling that the exact same thing is going to happen to the Accounting field that happened to the Design field: Everyone will flock to it, since it seems to be a good job, and pretty soon, there will be too many Accountants and not enough jobs. Sigh.

And JD: Oh yes, income is SO important. I’m exactly one of those people who has cut everything they can, and can not cut anything else, without sleeping on the streets. All I can do is boost my income…which I THOUGHT I could do by going back to college for an Accounting degree. I’m starting to once again fear the worst. (Still have 2.5 years of college left for MA in Accounting).

A frugality is undeniable a good thing. But imagine that you have an average income and you have to pay a mortgage and other inevitably expenses what would you do? I had decided to have besides an every day job for company also to have my own business, nothing big, just small and ordinary. I know it can be hard to manage both at the same time but believe me you can work out everything if you really want it.

Nice reminder. I’ve started counting the time I spend learning about investing and investing as part of this positive side of the equation–the income producing side. It often feels like a lot of work but I prefer it over other forms of labor beyond the full time job I do.

When it comes to making more, what’s worked quite well for me anyway is to follow the philosophy of “do the thing that other people don’t want to do”. Everyone and their brother wants to write a blog and make $$, not everyone wants to go work up north on a drilling rig in -30 weather. (Being a 17 yo girl back in the day when I worked in a camp up north, I got to work in the office though – still good $).

That philosophy works in the white collar world of offices too though – take on the project that everyone’s afraid to touch, take responsibility for results, go the extra mile once in a while instead of acting like a bomb’s going to go off at 5 p.m.

One of the things that struck me in The Millionaire Next Door was how many of the millionaires were in very non-sexy businesses like waste management, construction etc.

“But even if you are in a 25% tax bracket, you still get to keep 75% of what you earn (..)”

It’s very funny to see an example of 25% as being a high tax bracket. The lowest tax we have is 30% with 60% tax being the highest. If I could work a little extra for only 25% taxes I’d get on it right away.

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My name is J.D. Roth. I started Get Rich Slowly in 2006 to document my personal journey as I dug out of debt. Then I shared while I learned to save and invest. Twelve years later, I've managed to reach early retirement! I'm here to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you get rich slowly. Read more.

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